Significant warning on China reform roadblock: WSJ

RussellLeigh

(This story was published by The Wall Street Journal Online's Real Time Economics blog at http://blogs.wsj.com/economics)

The extensive reform blueprint the Communist Party released last month has unleashed a sense of optimism about Beijing's ability to steer the country away from the potholes that have brought other fast-growing economies to a halt.

But at least one high-profile government adviser is worried that the road ahead is still strewn with major roadblocks.

Wu Jinglian, a major intellectual force behind China's economic reforms since the 1980s and someone described as "the conscience of China's economic circles", said in a widely distributed interview ( in Chinese) broadcast on Chinese Central Television on Thursday evening that he was "worried that vested interests are the biggest obstacle to reform and a market economy."

Wu is a senior researcher at the State Council's highly influential Development Research Center--and therefore someone who reflects the thinking of many reformers in the Chinese leadership. While concern about vested interests undermining much need economic reforms is not new , the fact that a figure such as Wu is flagging them as an impediment on CCTV is significant.

The comments come as the Chinese leadership appears to be preparing to act on its reform promises. Commentaries in the Party media throughout this week have emphasized the need to "plan the path of good economic work for 2014," ( in Chinese) and to start implementing reform with more earnestness, with the front page of Friday's People's Daily stating that "with the reform blueprint in place, the key now is to put that blueprint into reality step-by-step" ( in Chinese).

According to Wu, however, carrying out those promises is likely to be difficult.

"In relying on market-oriented reforms, China has won the world's attention in terms of economic growth," he said. "However, that high growth seems to have made people forget why reform started." The economic reforms of the 1990s and early 2000s were enacted in large part because the State was becoming the monopoly player and was inefficient and uncompetitive. Beijing's response, spearheaded by then Premier Zhu Rongji, was to enact a painful dismantling of large swathes of the state sector that shattered the so-called "iron rice bowl" for hordes of workers but also unleashed an unprecedented period of growth.

Now, according to Wu, China has essentially returned to the situation that prompted the first wave of economic reforms as state-owned firms once again have come to dominate the economy.

"Many people have lost direction, the reform process has slowed down, and the economy has degenerated to what it was before," Wu argued, adding that rent-seeking by officials has meant that "corruption has become rampant, causing tension between the government and the people, [in which] the people do not trust the government."

An outspoken and sometimes controversial critic of recent political trends in Beijing, Wu is an interesting choice to defend the Communist Party's reform plans. That he was given such a prominent platform to deliver this message suggests that Party reformers are anxious about internal resistance to the reforms and feel an immediate need to rally support.

Wu's solution to the problem of vested interests is for the Party, the government , and the public to muster the political courage necessary to form a consensus on the need for reform. "The formation of such a consensus, he insists, "is largely why the Cultural Revolution ended--because [people felt] that [China] was at a dead end, and reform was required."

That's a tall order in a country that is many years removed from the political turmoil and personal suffering of the Cultural Revolution. More than a few in China are content with the status quo, or at least comfortable enough to shy away from the sort of battles required to make reforms stick.

And that's why Wu is reminding reformers to "be wary, be vigilant" that those in the Party and society who have the most to lose from these reforms don't win again this time.

China's reformers are still plodding along a very tough track. The path they've laid out is laudable, but it's still far from certain that they will be able to navigate it to the end.

Russell Leigh Moses is the dean of academics and faculty at The Beijing Center for Chinese Studies. He is writing a book on the changing role of power in the Chinese political system.

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